TMI Tax Updates - e-Newsletter
January 31, 2023
Case Laws in this Newsletter:
GST
PMLA
Articles
By: Saket Agarwal
Summary: The article explores the "Doctrine of Mutuality," which posits that an entity cannot transact with itself, thus challenging the taxability of transactions within associations or clubs. Historically rooted in English law, this doctrine has been pivotal in determining tax liabilities on mutual transactions. The 46th Amendment to the Indian Constitution aimed to expand the definition of 'sale' to include transactions by unincorporated associations, thereby challenging the doctrine. Indian jurisprudence has grappled with this doctrine, as seen in cases like Bangalore Club and Calcutta Club, which examined whether mutual transactions could be taxed. Recent amendments to the CGST Act attempt to override mutuality by deeming entities and their members as separate, raising questions about the doctrine's future applicability.
By: Parth Gondia
Summary: The Supreme Court's ruling in the case involving Northern Operating Systems Pvt Ltd has significant implications for the taxation of seconded employees. The Court held that the seconded employees remained employees of their foreign parent companies, making the Indian company liable for service tax on the reimbursement of salaries. This decision contradicts previous tribunal rulings and has potential ramifications under the Income Tax Act, particularly concerning the deduction of tax at source under Section 195 and the classification of reimbursements as "fees for technical services" under Section 9. The ruling may lead to increased litigation and calls for clearer tax guidelines.
By: DEVKUMAR KOTHARI
Summary: The article critiques the judgment in the case involving the Principal Commissioner of Income Tax, Kolkata, and Swati Bajaj, highlighting perceived oversights by the tax authorities and the Calcutta High Court. It argues that the authorities are overly skeptical of legitimate documents, such as bank statements and company registrations, and that the court has endorsed this flawed approach. The author contends that relevant legal provisions, including those from the Evidence Act, are misapplied or ignored. The judgment is seen as dismissing crucial evidence and established legal principles, prompting calls for reconsideration and collective action by investor support organizations.
By: Dr. Sanjiv Agarwal
Summary: Section 138 of the CGST Act, 2017 allows for the compounding of offences, enabling individuals accused of GST-related offences to pay a specified amount to avoid prosecution. The process is governed by Rule 162 of the CGST Rules, 2017. Compounding is not available for repeat offenders, those involved in offences exceeding one crore rupees, or those convicted under other laws. The compounding amount is determined by the Commissioner and ranges from a minimum of ten thousand rupees to a maximum of one hundred and fifty percent of the tax involved. Compounding results in the cessation of prosecution and is discretionary, not a right.
By: Bimal jain
Summary: The Karnataka High Court allowed a company to rectify errors in GST forms and returns for fiscal years 2017-2020. The company mistakenly used the wrong GST Identification Number on invoices due to bona fide reasons. The court applied Circular No. 183/15/2022-GST, which permits correction of such errors, and extended its applicability to fiscal year 2019-20, in addition to 2017-18 and 2018-19. The court directed the Revenue Department to follow the Circular's procedure, enabling the company to amend the forms and allowing the recipient to claim tax credit.
By: Bimal jain
Summary: The CESTAT Mumbai ruled in favor of a company providing Goods Transport Agency (GTA) services, setting aside tax recovery orders from the Commissioner of Central Excise & Service Tax, Aurangabad. The tribunal determined that the company's activities did not classify as 'Clearing and Forwarding Agency' services. The company had been fulfilling its tax obligations under the Reverse Charge Mechanism, and the tribunal found no legal basis for merging distinct services to impose additional taxes. The orders for recovery of tax dues and penalties were thus invalidated, and the appeal by the Revenue Department is pending before the Supreme Court.
By: Bimal jain
Summary: The Chhattisgarh High Court ruled that the availability of an alternative remedy does not bar filing a writ petition if there is a violation of natural justice. In the case involving a company and the Assistant Commissioner of State Tax, the court found that the company was not granted a requested personal hearing before a tax demand order was issued. The court quashed the Single Judge's order that directed the company to pursue an alternative remedy and mandated a new order be issued within 45 days after providing the company an opportunity for a hearing. No additional amounts are to be recovered until then.
Notifications
GST - States
1.
S.R.O. No. 138/2023 - dated
27-1-2023
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Kerala SGST
Kerala Goods and Services Tax (Second Amendment) Rules, 2023
Summary: The Kerala Government has issued the Kerala Goods and Services Tax (Second Amendment) Rules, 2023, effective from December 1, 2022. This amendment modifies the Kerala Goods and Services Tax Rules, 2017, by omitting rules 122, 124, 125, and 134, and revising rule 127 to change "Duties" to "Functions" and adjust its wording. Additionally, rule 137 is altered to redefine "Authority" under section 171 of the Act. These changes align with the recommendations of the Goods and Services Tax Council to update the existing framework.
2.
S.R.O. No. 137/2023 - dated
27-1-2023
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Kerala SGST
Kerala Goods and Services Tax (Amendment) Rules, 2023
Summary: The Government of Kerala has issued an amendment to the Kerala Goods and Services Tax Rules, 2017, under the Kerala State Goods and Services Tax Act, 2017. This amendment, effective from November 15, 2022, modifies FORM GSTR-9 instructions by extending the filing period from April to October 2022, with submissions due by November 30, 2022. These changes, recommended by the Goods and Services Tax Council, aim to update the tax filing requirements for the specified period.
Circulars / Instructions / Orders
GST - States
1.
136/2021-GST - dated
11-1-2023
Prescribing manner of filing an application for refund by unregistered persons
Summary: The circular issued by the Government of Assam outlines the procedure for unregistered persons to claim a refund of GST paid on services like construction or long-term insurance when contracts are canceled or terminated. It specifies that unregistered buyers can apply for refunds within two years from the relevant date, using a new functionality on the GST portal to obtain temporary registration. The refund process requires documentation and adherence to specific rules, including the provision that refunds under 1,000 rupees are not permitted. The circular aims to ensure uniform implementation across field formations and clarifies that it does not interpret the law.
2.
135/2021-GST - dated
11-1-2023
Clarification regarding the treatment of statutory dues under GST law in respect of the taxpayers for whom the proceedings have been finalised under Insolvency and Bankruptcy Code, 2016
Summary: The circular clarifies the treatment of statutory dues under GST law for taxpayers whose proceedings have been finalized under the Insolvency and Bankruptcy Code, 2016 (IBC). It states that dues prior to the Corporate Insolvency Resolution Process (CIRP) are considered 'operational debt' and claims should be filed with the National Company Law Tribunal (NCLT). Under Section 84 of the Assam GST Act, if government dues are reduced through appeal or other proceedings, including those under IBC, the Commissioner must inform the relevant parties and continue recovery for the reduced amount. FORM GST DRC-25 is used for issuing such intimation.
3.
134/2021-GST - dated
11-1-2023
Clarification on various issue pertaining to GST
Summary: The circular from the Principal Commissioner of State Tax, Assam, addresses clarifications on GST issues. It states that No Claim Bonus (NCB) offered by insurance companies is not a consideration for any supply by the insured and is a permissible deduction under section 15 of the Assam GST Act for determining the value of insurance services. Additionally, it clarifies that exemptions from mandatory e-invoicing apply to entities as a whole, not restricted by the nature of supply. The circular is intended to ensure uniform implementation and invites feedback on any difficulties encountered.
4.
133/2021-GST - dated
11-1-2023
Clarification with regard to applicability of provisions of section 75(2) of Assam Goods and Services Tax Act, 2017 and its effect on limitation
Summary: The circular from the Principal Commissioner of State Tax, Assam, clarifies the applicability of section 75(2) of the Assam GST Act, 2017, concerning re-determination of tax when fraud or willful misstatement is not established. It specifies that the proper officer must issue an order within two years from the communication of directions by the appellate authority or court. The circular outlines that the re-determination of tax, interest, and penalty should align with section 73's provisions, particularly focusing on the time limits for issuing show cause notices and orders. It emphasizes that proceedings must be dropped if notices exceed the specified time limits.
5.
132/2021-GST - dated
11-1-2023
Clarification on the entitlement of input tax credit where the place of supply is determined in terms of the proviso to sub-section (8) of section 12 of the Integrated Goods and Services Tax Act, 2017
Summary: The circular issued by the Principal Commissioner of State Tax, Assam, provides clarification on the entitlement of input tax credit under the Integrated Goods and Services Tax Act, 2017, specifically when the place of supply is outside India. It states that if goods are transported to a foreign destination, the place of supply is that foreign location, making it an inter-State supply subject to IGST. The recipient in India can claim input tax credit for the IGST charged, provided they meet conditions under sections 16 and 17 of the Assam GST Act. Suppliers must report the place of supply as '96-Foreign Country' in FORM GSTR-1.
Highlights / Catch Notes
GST
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GST Rate for Earthwork-Dominant Contracts with Indian Railways Set at 12%, Applies to Main and Subcontractors.
Case-Laws - AAR : Rate of GST - Works contract services involving predominantly earth work (that is, constituting more than 75per cent, of the value of the works contract) executed to Indian Railways (Central Government) by the Applicant is exigible to GST at 12% if the Applicant is providing the services either as a main contractor or as a sub-contractor to main contractor. - AAR
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Catering Services to Pre-University Colleges Exempt from GST Under Entry No. 66 of Notification No. 12/2017-Central Tax.
Case-Laws - AAR : Exemption from GST - providing catering services to Educational Institutions from 1st standard to 2nd PUC - Since the Applicant is providing ready to eat food by way of catering to a Pre University College, the services provided by the applicant under question before us is also covered under entry No.66 of Notification No. 12/2017-Central Tax (Rate) - Benefit of exemption available - AAR
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GST Exemption for Fertilizers and Soil in Bio Centers Not Covered Under Notification No. 2/2017.
Case-Laws - AAR : The Applicant wants to know whether supply of materials like fertilisers, soil and sand for use of bio centers are exempted under GST. However, there is no specific exemption for supply of materials like fertilisers, soil and sand for use of bio centers as per notification No.2/2017 - AAR
Income Tax
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Capital gains tax liability rests with the asset owner, not the attorney selling on their behalf. Tax additions deleted.
Case-Laws - AT : Taxability of capital gain - person who sold property as attorney of the owner - It is the owner of capital asset who would be liable for capital gain. In case the sale consideration is credited into the account of third party or the attorney of such owner, in that event also the money which has been credited in the account of the third party or the power of attorney cannot be subjected to tax under the head ‘capital gains’. - the action of the authorities below is contrary to the statutory provisions. - Additions deleted - AT
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Court Invalidates Reopening of Assessment: Reasons Lack Specificity & Connection to Alleged Illegal Mining, Deemed a Fishing Inquiry.
Case-Laws - AT : Reopening of assessment u/s 147 - share premium - As the reasons recorded does not quantify even an estimated amount of the alleged income which has escaped assessment and as it is noticed that the reasons recorded do not contain any live link to the alleged illegal mining, the reasons recorded for the purpose of reopening of assessment are invalid and is nothing but fishing enquiry. - AT
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Assessee Company Deemed "State" Under Article 12; Granted Income Tax Immunity Per Article 289 of Indian Constitution.
Case-Laws - AT : Exemption from levy of Income Tax - whether assessee shall be held as “State” and thus no tax can be levied on it under the income tax act? - the assessee company falls under the definition of “State” within the meaning of Article 12 of the Constitution of India and, therefore, in our considered opinion entitle for immunity from the taxation under the provisions of Income Tax Act 1961 as directed under article 289 of constitution of India 1949. - AT
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Interest and Forward Premiums Exempt u/s 10AA for Trading Business Assessee's Income Tax Claims.
Case-Laws - AT : Deduction u/s 10AA - interest on FDR along with Forward Premium - since the Interest on Fixed Deposits are attributable and incidental to the trading business carried on by the assessee, the same has rightly been claimed as exempt u/s. 10AA - AT
Customs
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Customs Broker Penalty u/s 112(a) Overturned: No Evidence of Knowledge or KYC Document Issues.
Case-Laws - AT : Levy of penalty - The appellant who is a Customs Broker cannot be expected to have knowledge about the goods in the container - On such circumstance, when there is no dispute with regard to the KYC documents submitted on behalf of the importer, the penalty imposed under sec. 112(a) alleging that the appellant has abetted smuggling of misdeclared / undeclared goods is without any factual basis. - AT
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Penalties Imposed for Using Fake Documents to Remove Imported Goods; Sections 112 and 114AA Enforced Against Fraud.
Case-Laws - AT : Imposition of penalty u/s u/s 112 and u/s 114AA - using fake/fabricated gate passes and on being unsuccessful, have filed bill of entry on forged/fabricated Air Way Bill (AWB) - removal of imported goods on fake gate passes without filing bill of entry - Penalties on different person confirmed or reduced - AT
IBC
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Section 9 Application Dismissed: Genuine Dispute Raised by Corporate Debtor in Insolvency Proceedings.
Case-Laws - AT : Initiation of CIRP - It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court. - The Corporate Debtor having raised genuine disputes in their detailed replies to the Legal Notice and the Demand Notice, the Adjudicating Authority ought not to have admitted the Section 9 application - AT
Service Tax
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SVLDR Scheme Clarifies 'Tax Dues' in Section 124(2) FA: Includes Both Duty and Interest for Total Payable.
Case-Laws - HC : SVLDR Scheme - meaning of expression ‘tax dues’ occurring in Section 124 (2) of the FA - The tax dues in the present case referred to not just the duty amount, but duty plus interest or to put differently the total amount of duty payable which would include the main duty component and the interest component. This explains why under Section 123(a)(i) FA while defining the expression ‘tax dues’, the legislature has referred to “the total amount of duty which has been disputed”. - HC
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Rule 4(a) Limits in Service Export: Importance of Tangible Presence Over 'Deemed Goods' in Place of Provision Rules 2012.
Case-Laws - AT : Export of service - Place of performance / supply of service - The deviation in rule 4(a) of Place of Provision of Service Rules, 2012 and, considering the specific circumstance of determination by tangible presence, it would not be amenable to stretching for coverage of ‘deemed goods’, if any, owing to that limitation of pinpointing ‘service’ which is of essence in the said Rule.- AT
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Appellant Denied Refund Under SVLDRS Due to Lack of Required Documentation; Article 265 Reference Rejected as Inapplicable.
Case-Laws - AT : Refund - Excess amount deposited SVLDRS as Voluntary Disclosure Scheme - SVLDRS- 2/SVLDRS-2B has not been placed on record. It becomes clear that appellant has failed to prove its disagreement to the amount quantified as payable by the designated authority. The disagreement has been the main contention of appellant’s argument, same stands totally unproved. Otherwise also, it being a case of voluntary disclosure, the appellant had to self assesse the payable amount in SVLDRS-1. The self declaration form has also not been produced by the appellant. - there is no applicability of article 265 of the Constitution of India as is impressed upon by the appellant. - AT
Central Excise
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CENVAT Credit Eligibility: Indirect Service Use Can Qualify, Not Limited to Direct Manufacturing Nexus.
Case-Laws - AT : CENVAT Credit - input services - Most services will not be amenable to direct use, and absorption, in the manufacture of goods; neither would these be clearly discernable in the product that emerges. The principle of nexus of service should not, therefore, restrict itself to direct use but should encompass indirect deployment and, hence, should be examined also in relation to the main leg of the definition. - AT
Case Laws:
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GST
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2023 (1) TMI 1459
Classification of goods - rate of tax - all types of jaggery are covered under the Notification No. 6/2022-Central Tax (Rate) dated 13-07-2022 or not? - HELD THAT:- The Applicant states that they are selling commission agents of Jaggery; that the jaggery is loosely wrapped and stitched in gunny bags or loosely wrapped in plastic covers for easy transport and to avoid unnecessary wastage in transportation, but not pre packed or labeled. The Applicant states that agriculturist manufacture the jaggery mainly with sugar cane juice by mixing necessary chemicals in minor portion; that the boiled sugar cane juice will be put in approximately 5kg, 10kg and 30kg pots and it will be in the form of lump (jaggery). The weight of none of the lumps are similar to each other; that the jaggery will be brought to APMC Yard wherein it will be examined by APMC Authority. In APMC Yard it will be handed over to the godown of selling commission agent and after bidding, the goods will be given to purchaser and there after weighment is made before the purchaser. The entry 91A says Jaggery of all types including Cane Jaggery (gur), Palmyra Jaggery, pre-packaged and labelled; Khandsari Sugar, pre-packaged and labeled is exigible to CGST at 2.5%. which means all types of jaggery which are prepackaged and labeled is exigible to CGST at 2.5%.
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PMLA
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2023 (1) TMI 1460
Money Laundering - proceeds of crime - provisional attachment order - rights of a secured creditor under SARFAESI Act would prevail over an order of attachment under the PMLA Act, or not - security created in favour of a bonafide lender who has exercised due diligence can be adversely impacted by an order of attachment under the PMLA Act - HELD THAT:- Prima facie, considering the appeal memo and interim application, it does appear that properties of additional respondent no.1 and additional respondent no.2, have been charged / mortgaged to appellant. It is possible that additional respondent nos.1 and 2 may argue that action by respondents under the provisions of PMLA was incorrect or malafide but that is a separate issue and that cannot deny the fact that the property has been secured to appellant. These are issues which requires consideration. But until these issues are considered, if the property which has been attached under the provisions of PMLA, which are also secured to appellant are not disposed, the property may get wasted or encroached upon and the value would also get eroded. It would be to nobody s benefit. Therefore, purely by way of an interim adhoc arrangement, we pass the following order: (a) The properties which are mortgaged / charged to appellant may be sold by appellant under the provisions of SARAFESI Act. The sale proceeds shall be deposited with the Registrar, Appellate Side, Bombay, of this court within one week of receiving the sale proceeds to be disbursed in accordance with any final order this court may pass in the appeal. (b) As and when appellant deposits the money with the Registrar, the registrar shall invest the amount in a fixed deposit with a nationalised bank for a minimum period of 13 months to be renewed for the same period until the disposal of the appeal unless otherwise ordered. (c) Since this is only an adhoc arrangement, we clarify that we have not expressed any opinion on appellant s case that they rank higher in priority as compared to respondent. Interim Application disposed.
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